On 1 July 2013, Avery Services issued a 4% long- term note payable for $10 000. It is payable over a 5- year term in $2 000 principal instalments on 1 July of each year. Each yearly instalment will include both principal repayment of $2 000 and interest payment for the preceding one- year period. What happens on 31 December 2013 before statements are prepared?
A)Avery must pay out $200 of interest expense to the note holder.
B)Avery does not need to take any actions.
C)Avery must accrue $200 of interest expense.
D)Avery must accrue for the coming $2 000 principal payment.

Question

Quizplus · Accepted Answer

Avery must accrue $200 of interest expense for the period from 1 July 2013 to 31 December 2013, which is half of the annual interest on the remaining principal.

On 1 July 2013, Avery Services Issued a 4% Long-